Subdued Growth No Barrier To Elemental Altus Royalties Corp. (CVE:ELE) With Shares Advancing 32%

Elemental Altus Royalties Corp. (CVE:ELE) shares have continued their recent momentum with a 32% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 69% in the last year.

Following the firm bounce in price, given around half the companies in Canada's Metals and Mining industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Elemental Altus Royalties as a stock to avoid entirely with its 13.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Elemental Altus Royalties

How Has Elemental Altus Royalties Performed Recently?

With revenue growth that's superior to most other companies of late, Elemental Altus Royalties has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Elemental Altus Royalties.

Is There Enough Revenue Growth Forecasted For Elemental Altus Royalties?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Elemental Altus Royalties' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 101% last year. Pleasingly, revenue has also lifted 222% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 43% over the next year. That's shaping up to be materially lower than the 65% growth forecast for the broader industry.

In light of this, it's alarming that Elemental Altus Royalties' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Shares in Elemental Altus Royalties have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It comes as a surprise to see Elemental Altus Royalties trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Elemental Altus Royalties that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.